Method and apparatus for monitoring guaranteed loans and notifying guarantors

ABSTRACT

A method and apparatus are provided for notifying a guarantor associated with a guaranteed loan of events likely to affect their interest in the guaranteed loan. The disclosed method and apparatus provides loan data with information on at least one guaranteed loan wherein the loan data includes information on the terms of the loan. The method and apparatus then monitors changes in the loan data and determines when changes in the loan data corresponding to the at least one guaranteed loan indicates a likelihood that the terms of the loan may not be met. Based on the determination the method and apparatus provides a notification to the guarantor based on the determination that the loan terms may not be met.

RELATED APPLICATION

This application is a continuation of U.S. patent application Ser. No.09/783,980, entitled “METHOD AND APPARATUS FOR MONITORING GUARANTEEDLOANS AND NOTIFYING GUARANTORS,” by Peter Schnall, filed on Feb. 16,2001, now U.S. Pat. No. 7,340,434, and is hereby expressly incorporatedby reference in its entirety.

BACKGROUND OF THE INVENTION

I. Field of the Invention

This invention generally relates to financial data processing systemsand, more particularly, to a method and apparatus for monitoringguaranteed loans and notifying guarantors.

II. Background and Material Information

Many loans require a guarantor to guarantee the payback of the loangranted to a loan recipient. The guarantor may be an individual, acompany or any other type of entity. Typically, lending institutionsrequire the guarantor's backing on a loan because the loan recipientdoes not meet certain credit criteria established by the lendinginstitution. For example, a business or person receiving a loan may havea poor credit history, one or more bankruptcy filings, low or no incomestream, or other characteristics that make funding the loan risky. Theguarantor helps the loan recipient qualify for a loan, despite thesepotentially higher risk factors, based on the guarantor'screditworthiness and willingness to guarantee payback of the loan in theevent the loan recipient defaults on the loan.

Loans guaranteed by a guarantor include small credit card loans to largereal estate loans. In each case, the loan recipient has the primaryresponsibility for paying back the loan according to the loan terms. Ifthe loan recipient pays the loan according to the terms, the guarantorhas no financial obligation to the lending institution. However, theguarantor may become financially liable if the loan recipient fails topay installments on the loan or otherwise does not meet the terms of theloan. In the latter situation, the lending institution may look to theguarantor as the secondary party responsible for paying back the balanceof the loan.

The guarantor may be unpleasantly surprised with the additionalfinancial responsibility of satisfying the loan recipient's obligations.Unfortunately, in many cases, it may be too late for the guarantor towork with the loan recipient to pay back the loan amount or torestructure the terms of the debt. As a result, without sufficientwarning or notification, the guarantor will have no choice but to payoffthe loan recipient's debt.

In view of the foregoing limitations, there is a need in the financialindustry to inform a guarantor that a loan recipient has failed to makepayments and/or is at risk of defaulting on the loan. The guarantorcould then take corrective action or steps in a timely manner to preventthe loan recipient from defaulting on the loan and eliminate the burdenof paying back the loan.

SUMMARY OF THE INVENTION

In view of the foregoing, a method and apparatus are provided,consistent with the features of the invention, of notifying a guarantorof events likely to affect a guaranteed loan. The disclosed method andapparatus provides loan data with information on at least one guaranteedloan wherein the loan data includes information about the loan, such asthe terms thereof. The method and apparatus then monitors changes in theloan data and determines when changes in the loan data corresponding tothe at least one guaranteed loan indicates a likelihood that the termsof the loan may not be met. Based on the determination the method andapparatus provides a notification to the guarantor based on thedetermination that the loan terms may not be met.

BRIEF DESCRIPTION OF DRAWINGS

The accompanying drawings, which are incorporated in and constitute apart of this specification, illustrate the various features andembodiments of the invention and, together with the detaileddescription, serve to explain the advantages and principles of theinvention. In the accompanying drawings:

FIG. 1 is a block diagram of a financial data processing systemconsistent with the features of the invention;

FIG. 2 is a block diagram of components used in a credit processingsystem for providing guarantor alerts, in accordance with the presentinvention; and

FIG. 3 is an exemplary flow chart indicating the various processes andoperations for providing notification to guarantors, in accordance withthe present invention.

DETAILED DESCRIPTION

Reference will now be made in detail to systems and methods, consistentwith the present invention, that are illustrated in the accompanyingdrawings. Wherever possible, the same reference numbers in differentfigures refer to the same or similar parts.

FIG. 1 is a block diagram of a financial data processing system 100consistent with the features of the present invention. System 100includes a loan processing system 104, an electronic messaging system108, a written notification system 110, and guarantor system 112. Loanprocessing system 104 and guarantor system 112 may be general purposecomputers or computer subsystems within larger computer systems.

There are several methods to integrate loan processing system 104 orguarantor system 112 into existing or “legacy” computer systems. Forexample, these systems can be connected to the legacy computer systemusing a standard network protocol such as TCP/IP. For example, databeing analyzed and used by loan processing system 104 can be transferredover a TCP/IP “socket” between loan processing system 104 and the legacycomputer systems. Alternatively, data can be transferred between loanprocessing system 104 and legacy computer system using data stored on atape or floppy disk storage device.

Loan processing system 104 receives information on loan recipient 106and determines the loan recipient's qualifications for a loan based oncredit information and loan information 102. Loan recipient 106 can be aperson such as a student, an organization such as a corporation orpartnership, or any other entity capable of receiving a loan. Creditinformation 105 includes information retrieved from one or more creditreporting agencies that indicate the creditworthiness of an entity orindividual, such as loan recipient 106. Loan information 102 includesloan qualification information and information indicating the term andrate of the loan, the monthly payments required to pay off the loan, andhistorical payment information associated with the loan.

If loan processing system 104 determines that loan recipient 106 doesnot qualify individually for the loan, then credit informationassociated with a guarantor 111 may be analyzed to approve the loan.Guarantor 111 can be a person, an organization such as a corporation orpartnership, or any other entity capable of guaranteeing a loan. Once aloan has been issued to loan recipient 106 backed by guarantor 111, loaninformation 102 may be regularly updated to provide current informationon the loan. The current loan information may include, for example, thecurrent outstanding balance of the loan, the last payment amount anddate, and late payments or penalties on the loan. Loan information 102may also include information identifying the guarantor of the loan andcontact information for sending alerts and/or other types ofnotification.

Loan processing system 104 processes loan information 102 associatedwith a loan made to loan recipient 106 and determines when notificationor alert should be sent to guarantor 111. If more than one guarantor isresponsible for the loan, a separate notification can be sent to eachguarantor. These notifications or alerts can be sent to guarantor 111directly using written notification system 110 or through guarantorsystem 112 using electronic messaging system 108, including via theInternet. Guarantor system 112 can be a general purpose computer or aspecialized device such as a wireless phone capable of receivingelectronic messages. Electronic messaging system 108 may process variouselectronic messages including e-mail, Web access, facsimile, telephonemessaging and/or electronic paging, to send notification to theguarantors. Written notification system 110 can be an automated systemor a system controlled by personnel for sending written notification byletter or postcard through the mail to guarantor 111. Both forms ofnotification may be used to send alerts or, in accordance with a featureof the invention, the preferred form of sending alerts may be selectedby the guarantor.

According to an aspect of the invention, guarantor alerts are sent inresponse to changes in the loan information detected by loan processingsystem 104. By way of example, loan processing system 104 may send anotification to a guarantor of the loan warning the guarantor thatpayment on the loan has not been paid in a timely manner and/or has beenforwarded to a collection agency for collection. This notification canbe sent early enough in the process so that the guarantor can contactthe loan recipient and encourage payment or make other arrangements topay the loan. In this example, the notification occurs when loanprocessing system 104 compares entries in a database associated with theloan processing system 104 indicating that the loan has not been paid orsent to collection. Loan processing system 104 can be programmed tomonitor changes in loan information each time a database update occursor at fixed time intervals, such as the close of business each day.

FIG. 2 is an exemplary block diagram of the components that can be usedto implement the loan processing system 104 and provide notification toa guarantor of a loan. Together, these components alert a guarantor thata guaranteed loan has not been paid in a timely manner and may becomethe responsibility of the guarantor. Such alert may be communicated byusing a TCP/IP protocol, for example. Preferably, these componentsinclude a memory 204, a processor 206, a communication connection 208, asecondary storage 210, and input-output ports 212 that areinter-connected by a bus infrastructure or network 230. In accordancewith an aspect of the invention, communication connection 208 mayinclude communication devices compatible with asynchronous transfer mode(ATM), Fiber Distributed Data Interface (FDDI), Copper Distributed DataInterface (CDDI) or other equivalent protocols. CDDI is theimplementation of FDDI protocols over shielded twisted pair (STP) andunshielded twisted pair (UTP) cabling. Secondary storage 210 can be ahard disk or other permanent storage device used to hold informationused in processing information with processor 206. Input/output ports212 may include serial ports or parallel ports for communication with aconsole, keyboard, mouse, printer or other devices. Although thesecomponents are highlighted, other components not specifically includedherein may be included as part of different implementations of loanprocessing system 104 that are consistent with the teachings of theinvention.

As illustrated in FIG. 2, memory 204 may be configured to store anoperating system 214, a loan processing module 216, and a guarantoralert module 218 that are executed by processor 206. Operating system214 manages resources such as memory 204 and secondary storage 210, aswell as the allocation of bandwidth through communication connection208. Operating system 214 also controls execution of modules onprocessor 206 and location of modules in memory 204.

Loan processing module 216 may include all of the necessary dataprocessing tasks associated with loans and other debt instruments. Thesetasks include gathering information on loan recipients such ascreditworthiness, determining maximum-qualified loan amounts based oncreditworthiness, tracking payment of loans, and identifying loans madewith a guarantee of payment by a guarantor. The data associated with thecredit processing performed by loan processing module 216 can be storedin and accessed from a loan database 220. Loan database 220 may beorganized and stored within secondary storage 210. Loan database 220includes raw data on loans made by the lending institution (such as loaninformation 102) and may also includes data from credit reportingagencies (such as credit information 105) imported through communicationconnection 208. This loan information can be stored as raw credit andloan information within loan database 220 and/or may include apoint-score system used by the credit reporting industries such as FairIssac (FICO). Preferably, at least one table in loan database 220 willalso indicate whether a loan has be co-signed and guaranteed by aguarantor. Contact information and notification preferences for eachguarantor can also be provided in the loan database 220, in accordancewith an aspect of the invention.

Guarantor alert module 218 includes data processing tasks, consistentwith the features of the invention, for sending alerts to guarantorsdepending on the state of a particular guaranteed loan. Guarantor alertmodule 218 can be developed in a database programming language such asstructured query language (SQL) or 4GL to access loan database 220,analyze the information and generate alerts from loan processing system104. Alternatively, alert module 218 can be developed usingobject-oriented programming languages such as Java or non-objectoriented programming languages such as C. In operation, guarantor alertmodule 218 obtains loan information from loan database 220. For example,guarantor alert module 218 can use SQL statements to retrieve theappropriate fields of information from loan database 220 correspondingto changes in loan information. As discussed above, the loan informationcan be transferred over a network connection or may be uploaded using asecondary storage device such as a tape or floppy-disk and stored inloan database 220.

Certain values associated with loan information in loan database 220 arecompared against threshold values to identify loans potentially subjectto default. For example, guarantor alert module 218 may locate loans inloan database 220 with late payments of over 60 days. A loan having alate payment over 60 days may be identified by alert module 218 and anotification may be sent to guarantor that the loan may be enteringdefault.

FIG. 3 is an exemplary flow chart indicating the various processes andoperations performed by the guarantor alert module 218 to transmit analert to guarantors that a trigger event associated with a guaranteedloan has occurred. Preferably, the notifications will serve as a warningto the guarantor that the loan may soon be in default, thus, enablingthe guarantor to take measures to guarantee payment of the loan.

As illustrated in FIG. 3, guarantor alert module 218 is initialized andexecuted by processor 206 in FIG. 2 to identify each loan associatedwith a guarantor (step 302). Guarantor alert module 218 may beinitialized and executed on a periodic basis such as one or moreschedule time intervals each day or continuous basis each time an updateis applied to loan database 220. In order to identify guaranteed loans,guarantor alert module 218 may access the appropriate table in loandatabase 220 indicating each loan that is guaranteed by a guarantor. Thetable in loan database 220 may include a record entry for each loan thatindicates information on the loan recipient, the guarantor(s) on theloan (if any) and the contact information for the guarantor, such as ane-mail address or an address. Additionally, notification preferences maybe provided to identify the type of information to monitor in loandatabase 220 and the preferred form of notification (e.g., electronic,written or none) for sending notifications to the guarantor. Thenotification preferences may also be used to determine if notificationservice is active for a particular loan.

For each loan identified as having a guarantor, guarantor alert module218 determines if loan servicing associated with the loan includesnotifying the guarantor of changes associated with the loan (step 304).Some guarantors may wish to opt out of the guarantor alert service forvarious reasons, including to save money if a premium is charged by thelending institution for the service. If there is no guarantornotification service for the identified loan, then servicing of thatloan by the guarantor alert module 218 is terminated or skipped, and thenext loan is analyzed.

As further shown in FIG. 3, for each loan having the guarantor alertservice, guarantor alert module 218 monitors changes in the loan datarelated to payment of the loan. Specifically, guarantor alert monitormodule 218 checks for changes in loan data that indicates the loanrecipient may not meet the terms of the loan or default on the loan(step 306). For example, guarantor alert module 218 may compare athreshold limitation related to the terms of the loan with the actualloan information associated with the loan. Exceeding the thresholdlimitation may create a trigger event indicating that the loan may be atrisk of going into default. For each guaranteed loan, one or moretrigger events may be monitored by the guarantor alert module 218 thatare either selected by the guarantor or correspond to a predeterminedset of trigger events selected by the lending institution. Preferably,the set of trigger events tracked by the alert module 218 correspond toevents indicating that a loan recipient may default on the loan or thata term of the loan agreement may be violated.

For example, one trigger event may occur when the total loan amount on acredit card equals or exceeds the maximum loan amount threshold set bythe lending institution. For example, a student in college may maximizethe debt allowed on a credit card guaranteed by his or her parents.Another trigger event may occur when the maximum time period to makepayments on a loan has been exceeded or the minimum required paymentshave not been met for one or multiple payment periods. Yet anothertrigger event may occur when the maximum debt has not been reached andthe monthly payment on a debt has exceeded a maximum monthly paymentthreshold limitation. For example, a person with a low income may notmaximize the debt carried on a credit card yet may have exceeded areasonable monthly payment based on the current interest rate of theloan and the balance of the loan being carried forward from period toperiod. This may occur using short term debt such as revolving credittype credit cards or lines of credit. Yet another trigger event mayoccur when a person's credit score drops and the loan amount is riskierthan allowed based on the credit score. The types of trigger eventsdiscussed above are meant as illustrations and examples, and are not tobe viewed as an exhaustive listing of all the trigger events that can bemonitored. Accordingly, guarantors may be notified of different eventsother than those discussed above, as well as various combinations of theevents discussed above or determined to be significant.

Once the change in loan information indicates a loan default isimminent, guarantor alert module 218 provides notification to theguarantor or other party that default on the loan is likely (step 308).For example, if the guarantor requests verbal notification (step 310),then the lending institution or an automated message center willverbally notify the guarantor (step 314). The verbal notification may besent to the guarantor using a voice communication system, such as atelephony based network. If, however, the guarantor requests to benotified electronically (step 316), then notification may be directed toelectronic messaging system 108 where an electronic message, forexample, a paging or e-mail message is generated and sent to theguarantor (step 312). Alternatively, a Web site may post suchinformation which the guarantor can access from time to time. Such a Website may be made secure so that access is limited to authorized usersonly. The electronic message may describe the particular change in loaninformation that has occurred and identify the associated guaranteedloan, as well as other pertinent or current loan information (e.g.,outstanding balance, last payment amount and date, etc.). Alternatively,if the guarantor requests written notification then guarantor alertmodule 218 may cause written notification system 110 to generate aprinted notification using a printer and send the notification to theguarantor through the mail describing the change in loan information andother pertinent information related to the loan (step 318).Alternatively, the lending institution may decide the type ofnotification to transmit rather than having the guarantor decide theappropriate type of notification.

While specific embodiments have been described herein for purposes ofillustration, various modifications may be made without departing fromthe spirit and scope of the invention as set forth in the claims. Forexample, the features consistent with the invention are not limited toguaranteed loans. Notification may also be used by lending institutionsand other organizations to track any type of loan issued to a loanrecipient, including loans that are not backed by a guarantor. Thenotification may be used by the financial institution to monitor whenthe financial status of the loan recipient changes and the loan is atrisk of being defaulted. By providing such notification at an earlystage, the status of loans can be monitored by the lending institutionor organization to determine which loans are at risk and to takemeasures to prevent the loans from going into default. Accordingly, theinvention is not limited to the above described embodiments, but insteadis defined by the appended claims in light of their full scope ofequivalents.

1. A method, executed on a data processing system, of notifying aguarantor of events likely to affect a guaranteed loan, wherein aprocessor of the data processing system performs operations comprising:identifying, using the processor, a guaranteed loan associated with theguarantor; collecting, using the processor, guarantor information forthe identified guaranteed loan, wherein the guarantor informationincludes at least one guarantor preference associated with theguaranteed loan; selecting loan data associated with the guaranteed loanfor monitoring based on the guarantor information; monitoring, using theprocessor, changes in the selected loan data; detecting, using theprocessor, a change in the selected loan data that indicates alikelihood that at least one term of the identified guaranteed loan willnot be met; and providing a notification to the guarantor based on thedetecting indicating that the at least one term will not be met.
 2. Themethod of claim 1 wherein detecting further comprises: comparing a firstthreshold value for measuring loan data with a first actual value of theloan data; and identifying the guaranteed loan as being at a risk of notmeeting the at least one term according to the comparison.
 3. The methodof claim 1, wherein the loan data includes at least one of a total loanamount, a time period to make a payment, a monthly payment, and a creditscore.
 4. The method of claim 2, wherein the first actual value includesone of an actual total loan amount, an actual time period no payment hasbeen made against the guaranteed loan, an actual monthly paymentassociated with the guaranteed loan, and an actual credit score for theloan recipient.
 5. The method of claim 2, further comprising: definingthe first threshold value, wherein the first threshold value includesone of a maximum loan amount, a maximum time period to make a payment, amaximum monthly payment, and a minimum credit score.
 6. The method ofclaim 1 wherein the guarantor information further includes guarantorcontact information that can be used to contact the guarantor of theguaranteed loan.
 7. The method of claim 1 wherein the at least oneguarantor preference identifies a type of loan data to be monitored. 8.The method of claim 1 wherein the at least one guarantor preferenceidentifies a preferred form in which the notification shall be providedto the guarantor.
 9. The method of claim 1 wherein the at least oneguarantor preference identifies information to be included in thenotification.
 10. The method of claim 8 wherein the form of notificationincludes at least one of an electronic message, a written notice, and acomputer generated verbal notification.
 11. The method of claim 1,wherein providing the notification further includes selecting a form ofthe notification based on the guarantor information and providing thenotification to the guarantor in the selected form.
 12. The method ofclaim 1, wherein collecting guarantor information includes requestingand receiving guarantor information from the guarantor.
 13. An apparatusfor notifying a guarantor associated with a guaranteed loan of eventslikely to affect their interest in the guaranteed loan, comprising: aprocessor; and a memory containing instructions executable by theprocessor that identify a guaranteed loan associated with the guarantor,collect guarantor information for the identified guaranteed loan, selectloan data associated with the guaranteed loan to be monitored based onthe guarantor information, monitor changes in the loan data, detect achange in the loan data that indicates a likelihood that at least oneterm of the identified guaranteed loan will not be met, and provide anotification to the guarantor based on a determination that the at leastone term will not be met.
 14. The apparatus of claim 13 for notifying aguarantor, further comprising instructions that: compare a firstthreshold value for measuring loan data with a first actual value in theloan data; and identify the guaranteed loan as being at risk of notmeeting the at least one term according to the comparison.
 15. Theapparatus of claim 13, wherein the loan data includes at least one of atotal loan amount, a time period to make a payment, a monthly payment,and a credit score.
 16. The apparatus of claim 14, wherein the firstactual value includes one of an actual total loan amount, an actual timeperiod no payment has been made against the guaranteed loan, an actualmonthly payment associated with the guaranteed loan, and an actualcredit score for the loan recipient.
 17. The apparatus of claim 14further comprising: defining the first threshold value, wherein thefirst threshold value includes one of a maximum loan amount, a maximumtime period to make a payment, a maximum monthly payment, and a minimumcredit score.
 18. The apparatus in claim 13 for notifying a guarantor,wherein the guarantor information includes guarantor contact informationthat can be used to contact the guarantor of the guaranteed loan. 19.The apparatus of claim 13 for notifying a guarantor, wherein theguarantor information identifies a type of loan data to be monitored.20. The apparatus of claim 13 for notifying a guarantor, wherein theguarantor information identifies a preferred form in which thenotification shall be provided to the guarantor.
 21. The apparatus ofclaim 13 for notifying a guarantor, wherein the guarantor informationidentifies information to be included in the notification.
 22. Theapparatus of claim 20 for notifying a guarantor, wherein the form ofnotification includes at least one of an electronic message, a writtennotice, and a computer generated verbal notification.
 23. The apparatusof claim 13 for notifying a guarantor, wherein the memory furtherincludes instructions that are executable by the processor to select aform of the notification based on the guarantor information and providethe notification to the guarantor in the selected form.
 24. Theapparatus in claim 13 for notifying a guarantor, further includes a userinput interface to receive guarantor information directly from theguarantor.
 25. An apparatus for notifying a guarantor of events likelyto affect a guaranteed loan, comprising: a processor; and a memorycommunicatively coupled to the processor, the memory containing modulesexecuted by the processor, the modules comprising: an identifying moduleconfigured to identify a guaranteed loan associated with the guarantor;a collecting module configured to collect guarantor information for theidentified guaranteed loan; a selection module configured to select loandata associated with the guaranteed loan to be monitored based on theguarantor information; a monitoring module configured to monitor changesin the loan data; a detection module configured to detect a change inthe loan data that indicates a likelihood that at least one term of theidentified guaranteed loan will not be met; and a notification moduleconfigured to provide a notification to the guarantor based on thedetection module indicating that the at least one term will not be met.26. A computer-readable medium storing instructions for performing amethod, when executed by a processor, for notifying a guarantor ofevents likely to affect a guaranteed loan, the method comprising:identifying a guaranteed loan associated with the guarantor; collectingguarantor information for the identified guaranteed loan, wherein theguarantor information includes at least one guarantor preferenceassociated with the loan; selecting loan data associated with theguaranteed loan based on the guarantor information; monitoring changesin the selected loan data; detecting a change in the selected loan datathat indicates a likelihood that at least one term of the identifiedguaranteed loan will not be met; and providing a notification to theguarantor based on the detecting indicating that the at least one termwill not be met.
 27. A computer-implemented method of notifying aguarantor of events likely to affect a guaranteed loan, comprising:collecting, using a processor, loan data including information regardingat least one guaranteed loan; collecting recipient informationassociated with a recipient of the loan; determining at least onethreshold value for measuring loan data, based on the recipientinformation; monitoring, using the processor, changes in the loan data;determining, using the processor, a likelihood that the at least oneguaranteed loan will not meet at least one term of the guaranteed loanbased on a relationship between at least one actual value in the loandata and a corresponding threshold value; and providing, using theprocessor, a notification to the guarantor based on the likelihood thatthe at least one term will not be met.
 28. The method of claim 27wherein the at least one threshold value includes at least one of amaximum loan amount, a maximum time period to make a payment, a maximummonthly payment, and a minimum credit score.
 29. The method of claim 27wherein the recipient information includes at least one of informationreflecting a creditworthiness of the recipient and a loan paymenthistory of the recipient.
 30. A method, executed on a data processingsystem, of notifying a plurality of guarantors of events likely toaffect a guaranteed loan, comprising the following steps performed by aprocessor of the data processing system: identifying a plurality ofguarantors associated with the guaranteed loan; collecting, using theprocessor, guarantor information for each of the identified guarantors,wherein the guarantor information includes at least one guarantorpreference associated with the guaranteed loan; selecting loan dataassociated with the guaranteed loan for each of the guarantors based onthe corresponding guarantor information; monitoring, using theprocessor, changes in the selected loan data for each guarantor;detecting, using the processor, a change in the selected loan data thatindicates a likelihood that at least one term of the identifiedguaranteed loan will not be met; and providing a notification to theplurality of guarantors based on the detecting indicating that the atleast one term will not be met.
 31. The method of claim 30, whereinproviding the notification further includes selecting a form ofnotification for each of the guarantors based on corresponding guarantorinformation and providing the notification to the plurality ofguarantors in each selected form.